Appreciation – Wholesaler Friend or Foe?

One of the things I have seen a lot lately is wholesale deals banking on appreciation.  And as a Buyer myself, I can tell you I love appreciation!  Appreciation can cover a multitude of sins.

The problem is they are still sins and as a wholesaler, it is best to be aware of them if you want to move your deals!  When running comps for your Buyer, the safest route is the tried and true MLS.  Not Zillow or Trulia or some of these other online sites that can give snippits of value to the market but the good ol’ MLS.

One key piece to help avoid the appreciation challenge is to simply ensure your comps are current as of today.  Not what you think it will be in three months or six months no matter how hot it is.  Only today.  Why?  It keeps your Buyers safe.  This is very important.  It also keeps your numbers strong for your offers and negotiation so you can make sure you get a deal that makes sense.  Nothing is worse than sitting on a deal you need to move quickly only to find it never had a chance because others did not see the value you saw. 

Along those lines, it helps to define what a ‘hot’ market is.  There is no right or wrong answer here.  Hot in one market may be considered appreciation of 10%.  Depending on your price point, that could be tens of thousands.  Example:  If you are selling at $500,000 and get a 10% appreciation bump, that’s $50,000.  That’s a nice day!  Conversely, if you are selling at $50,000, that would only be $5,000.  Yes, it is still $5,000 but not nearly as exciting as $50,000.  As a wholesaler this may not seem like a big deal but to your Buyers, it can be a very big deal.  So always keep the end game in mind as to how they see the numbers since they will be doing the work on the deal.

Not that hoping for appreciation is a bad thing!  In fact, in hotter areas, it can be almost expected.  The key is to not use it as a baseline but just for what it is…icing on the cake.

It is ok to market potential appreciation for sure but just be true to your Buyers and keep it as that, ‘potential appreciation’.  Speaking of it as if it is fact is a great way to not have that Buyer buy from you ever again.  Many Buyers really do trust wholesalers, perhaps more than they should (see my last column on emotion).  And some wholesalers are very trustworthy!  Your goal is to be one of them.  Buyers that have been around a while, a.k.a. the ones you want to have on your Buyers list will see through the appreciation game if you leverage it, so again, best to leave it for what it is. 

In the end, appreciation is a wonderful gift that keeps giving when the market is ‘normal’ or a Seller’s market.  However, we all know the market can shift at any moment like it did a few years ago.  Always ensure you are selling your Buyers solid deals and the risk of pitfalls for you and your Buyer will be greatly diminished.  Appreciation is the first thing to high tail it out of town when there is a market shift for the worst so be cognizant of that always.  Especially if you are wholesaling larger deals whether renovations or new construction.  Keep appreciation in perspective and you and your Buyers will appreciate it greatly!